Explanation

This specific risk was not identified in the FDD Package. Item 20 shows there are no existing or former franchisees, so no turnover data exists. While this avoids the specific risk of a high turnover rate, the complete absence of an established franchisee network is a significant risk factor addressed under the 'New/Unproven Franchise System' risk.

Potential Mitigations

• Your business advisor can help research typical franchisee turnover rates for the home services industry to establish a baseline for future evaluation.
• An experienced franchise attorney should explain the importance of turnover data in assessing the health of a franchise system.
• In the future, your accountant should help you analyze Item 20 data annually to monitor system stability.

Explanation

This risk was not identified, as Item 20 shows the franchisor has not yet sold any franchises. Therefore, the risk of growth outpacing support infrastructure is not currently present. However, Item 20 does project opening 15 franchised outlets in the next fiscal year, which means this could become a significant risk in the near future if that growth materializes.

Potential Mitigations

• It is important to ask the franchisor about its specific plans to scale support staff and systems to accommodate future growth; a business advisor can help you evaluate their plans.
• Your accountant can assess if the franchisor's current financial state can support the infrastructure needed for projected growth.
• A franchise attorney should review the support obligations outlined in the Franchise Agreement to see if they are specific and enforceable.

Explanation

This risk was not identified. The franchise offers drywall repair and replacement services. This is a fundamental home maintenance service with sustained, long-term consumer demand, not a business model that appears to be based on a short-lived trend or fad.

Potential Mitigations

• A business advisor can help you research the long-term stability and demand within the home services and repair industry in your local market.
• To understand the competitive landscape, you might consult a local marketing expert.
• An accountant can help you model the financial effects of economic cycles on the home repair business.

Explanation

This risk was not identified in the FDD. Item 1 indicates the franchisor is a private LLC, and Item 2 lists individuals as the key management and owners. There is no disclosure of ownership by a private equity firm, which can sometimes bring a focus on short-term profits over long-term system health.

Potential Mitigations

• Should the franchise be sold to a private equity firm in the future, it would be wise to consult your franchise attorney to understand the potential implications.
• Working with a business advisor can help you stay informed about industry trends, including acquisitions of franchise systems.
• Your accountant can help you analyze any changes in financial reporting or fee structures that might occur under new ownership.

Explanation

This risk was not identified. Item 1 states that Hole in the Wall does not have any parent entities. The FDD is transparent that the franchisor is a standalone LLC with a separate (though related) affiliate company. The lack of a parent company avoids risks associated with a distant, controlling entity.

Potential Mitigations

• A review of the corporate structure with your attorney can confirm the relationships between the franchisor and any affiliates.
• Your accountant should analyze the financial statements to understand any financial dependencies on the affiliate company.
• A business advisor can help clarify the roles and responsibilities of the franchisor versus its affiliate.

Explanation

This risk was not identified. Item 1 of the FDD clearly states that the franchisor has no predecessors. The franchisor is a new legal entity created for the purpose of franchising the business model operated by its affiliate. Therefore, there is no hidden history of prior business failures or issues under a predecessor name.

Potential Mitigations

• Understanding the history of a franchisor and any predecessors is a key piece of due diligence your attorney should perform.
• A business advisor can help you research the full history of a brand, even if a new legal entity has been formed.
• Your accountant can review past financial data, if available from an affiliate or predecessor, to look for historical issues.

Explanation

This risk was not identified. Item 3 states that no litigation is required to be disclosed. The absence of a history of lawsuits, particularly those initiated by franchisees alleging fraud or breach of contract, is a positive indicator, though it is also expected for a brand-new franchisor with no franchisees.

Potential Mitigations

• Your franchise attorney should always perform a thorough review of Item 3 as it can be a critical indicator of system health.
• It is wise to conduct independent online searches for any news or legal actions involving the franchisor or its principals, with help from a business advisor.
• An accountant can help assess any potential financial impact on the franchisor resulting from disclosed litigation.